George Clooney Could Get Up To $233 Million From Casamigos Tequila Sale

It’s a great month to be George Clooney. Two weeks ago, he became a father to twins. On Wednesday, British liquor giant Diageo announced it would purchase Casamigos, the tequila company he co-founded, for up to $1 billion.

The price tag includes an initial payout of $700 million, plus a further potential $300 million over the next decade based on the brand’s performance, according to Diageo. The deal is expected to close before year end, pending regulatory approval.

“If you asked us four years ago if we had a billion dollar company, I don’t think we would have said yes,” Clooney told CNBC. “But we’re not going anywhere. We’ll still be very much a part of Casamigos. Starting with a shot tonight. Maybe two.”

Founded in 2013 by actor and director Clooney, nightlife entrepreneur Rande Gerber and real estate tycoon Mike Meldman, the tequila initially began as a private selection for Gerber and Clooney’s acquaintances. But the pet project, which translates to “house of friends,” evolved into a legitimate business when they were forced to get a license to keep making the blue agave-derived drink.

The initial $700 million payout split three ways would mean up to $233 million pretax for Clooney. After Uncle Sam’s cut, he’ll be left with closer to $140 million, with the option to earn up to another $100 million before taxes in the next 10 years if the brand performs well.

For Diageo, it won’t be its first foray into celebrity liquor: The London, U.K.-based company currently partners with Sean “Diddy” Combs on Ciroc vodka, which is to thank for a chunk of the rapper’s $820 million net worth. It also developed Pharrell Williams’ failed Q Qream liqueur.

Of course, Clooney’s deal still pales in comparison to the largest entertainer take-home ever: Rapper and producer Dr. Dre’s $620 million paycheck in 2014, after Apple bought Beats for $3 billion.

Still, it’s not bad for a company that began in the Mexican holiday homes of Hollywood’s elite. But analysts question whether Casamigos, which shifted a relatively modest 120,000 cases in 2016, is worth such an overblown price tag.

With a bottle selling for between $45 and $55, the company’s tequila probably generated some $70 million in 2016 revenue at retail. But when retail markup and wholesale prices are taken into account, the company’s actual sales could be closer to an estimated $36 million—which would mean, at $700 million, Diageo is paying 20 times Casamigos’ revenues, a very steep multiple.

In comparison, Brown-Forman spent $876 million on two tequila brands, Tequila Herradura and El Jimador in 2006, which had sold nearly 1.8 million cases combined in the year prior to its acquisition. In 2012, Beam forked out $600 million on the cheaper Pinnacle tequila, which was set to shift more than 3 million cases that year. More recently, Pernod Ricard bought the majority of Avion Tequila for $100 million in 2014 (it had moved 53,000 cases in 2013, according to Impact Databank).

“Based on the case volumes and recent acquisitions, the number seems high for what they’re purchasing,” said Eric Schmidt, director of alcohol research at Beverage Marketing Corporation, of the Casamigos purchase. “Diageo under-indexes in segments of the market that are growing–tequila is one of them. They’re trying to fill a niche.”

Indeed, many more Americans are guzzling tequila than ever before. Domestic sales are growing at an average annual rate of 5.8%, according to the Distilled Spirits Council. The explosion is powered by high end offerings, which have seen an increase in sales of 292% since 2002.

“Nine out of every 10 tequila bottles sold in the world are sold in Mexico and the U.S.,” said Spiros Malandrakis, a senior alcoholic drinks analyst at Euromonitor, who believes tequila’s growth potential now lies in exporting beyond its current borders. Though Clooney is known worldwide, his strength as an ambassador may not be enough to drive the company to international success. “Any celebrity endorsement factor creates an initial momentum but it cannot be relied upon for sustainable growth for a long period of time,” concluded Malandrakis.

Casamigos is projected to ship 170,000 cases in 2017, according to the company. While that growth rate is impressive, it remains to be seen whether it can perpetuate such expansion.